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An empirical analysis of budgetary follow-up in the EU

Macroeconomic projections are an essential building block of any budgetary plan. This column studies the one-year-ahead budgetary projections from the Stability and Convergence Programmes of EU member states and finds that the most important variable explaining budget balance errors is GDP growth. More optimism in GDP growth projections produces more optimistic budgetary projections. The findings call for delegating the construction of output projections to adequately equipped national independent fiscal institutions.

Reckoning with the growing demand for long-term care

Declining fertility rates and longer life expectancies are producing an ageing global population. This column investigates the challenges that rapidly ageing societies pose to systems of long-term care. To avoid shortages in the workforce, the long-term care industry should endeavour to improve working conditions while also recruiting workers from a larger pool. Investing in disability prevention and rehabilitation are also promising avenues to absorb pressure from growing long-term care needs.

Effects of an embargo on Russian gas

The April 2022 CfM survey asked members of its European panel to assess the effects of an embargo on Russian gas on the German and EU economies. The majority of panellists assesses that an embargo on Russian gas would cut one to three percentage points from German GDP growth in 2022-3, if the German government offsets the costs with well-targeted fiscal policy. Estimates increase if the German government were to take no offsetting action.

Consumption effects of mortgage payment holidays during Covid-19

Mortgage payment holidays were introduced in the UK March 2020 to help households who might have struggled with mortgage payments during the Covid-19 pandemic. Using transaction-level data, this column finds that payment holidays supported consumption during the pandemic for more financially vulnerable households, while more financially stable households on a payment holiday increased their savings instead. These results suggests that payment holidays may have been instrumental in supporting household balance-sheets following the negative aggregate shock triggered by Covid-19. 

The education–innovation gap

Higher education programmes are essential for innovation and economic growth. This column introduces the education–innovation gap, a metric that captures the distance between education content and the knowledge frontier. Among US higher education institutions, the education–innovation gap is significantly lower for courses taught by instructors who are more active in producing research. The gap is higher in schools with students from lower socioeconomic status. On average, exposure to frontier knowledge is associated with better student outcomes.

Rising cereal prices and political violence in the croplands of Africa

We tend to associate rioting and mass protest with cities, but a surge in agricultural commodity prices can incite social unrest in rural areas as well. This column shows that rising cereal prices pose an elevated risk of violence in Africa, where agriculture represents a large share of the economy. The authors find that attacks on civilians increase during the harvest season and dissipate as the year progresses – findings that can help pinpoint, on a yearly basis, when conflicts will worsen and where enhanced food security and civilian protections should be deployed.

A new perspective on Chinese agricultural development

A pessimistic view of Chinese agriculture development is based on a Malthusian trap, characterised by diminishing returns to agriculture and a declining land-labour ratio. This column presents stylised empirical facts of 19th and 20th century Chinese agriculture, focusing on the seasonality of labour demand and the resulting rise of sideline employment, to challenge the implications of this view.

Energy sanctions: IGM Forum survey

As Russia’s invasion of Ukraine continues and many call for a strengthening of sanctions, an alternative to a full energy embargo has been discussed in the form of EU tariffs on imports of Russian gas. The IGM Forum at Chicago Booth invited its panels of leading US and European economists to express their views. As this column reports, nearly three-quarters of the experts consider that high tariffs would be an effective measure to reduce the flow of revenues to Russia while limiting disruption to supplies to Europe.

Impacts of firm global value chain participation on productivity

Participation in global value chains is commonly seen as an important driver of productivity growth. This column uses Japanese firm-level data to estimate the productivity-enhancing impacts of participation. On average, firms that form part of global value chains are found to exhibit higher productivity than non-participating firms. In addition, longer participation strengthens the productivity-enhancing effects.

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